Moody's Reviewing Ratings on Over $100 Billion in SIV Debt

Moody's Investors Service has downgraded or put on review $119 billion of debt sold by SIVs in the most sweeping downgrade since subprime mortgages caused the bond market to seize up. The review includes top-rated notes held by money markets and local government investment pools. "In recent weeks, Moody's has observed material declines in market value across most asset classes in SIV portfolios," the agency said in a statement. "The situation has not yet stabilized and further rating actions could follow." The NAV, or net asset value, of an SIV is the amount investors would be left with if the SIV was forced to dump assets in order to repay debt. Moody's said Friday the NAVs of 20 SIVs have fallen to 55% from 71% a month ago and 102% in June. The agency accordingly slashed ratings on $14 billion of SIV debt, mainly commercial paper and medium-term notes, and placed another $105 billion on review. Six Citigroup SIVs with $64.9 billion of debt, the values of which fell to 56%, were either downgraded or put on review, as were the ratings of Bank of Montreal's $19 billion SIV. The NAV of Orion Finance Corp., managed by Eiger Capital and sponsored by ING, is down to 54%. "We need to see the purging process result in a cleaning up of the bad debt," said Scott MacDonald, head of research at Aladdin Capital Management. "This is a painful but necessary healing process." In related news, the Florida State Board of Administration, in an effort to prevent a run on the Local Government Investment Pool, halted withdrawals from the fund, effectively denying school districts, towns and cities in the state access to their money. The fund had $2 billion in SIVs and other debt exposed to the subprime collapse.